4/17/2009 @ 1:00PM

What The EPA's Ruling Means For Business

The Environmental Protection Agency ruled today that carbon dioxide, a suspected cause of global warming, is an air pollutant that it is legally bound to regulate, a decision likely to have a vast impact on the U.S. economy and the way American companies do business. It is also a boon for cleantech, and may turn investors away from carbon intensive industries for good.

Lisa Jackson, the EPA administrator, signed a so-called endangerment finding, stating that carbon dioxide and five other products of fossil fuel combustion are harmful to both the environment and to human health. As a result, the EPA could begin regulating automotive CO2 emissions as soon as June. The ruling also gives the EPA broad power to regulate greenhouse-gas emissions from industry and electric power utilities for the first time.

“This is a huge turning point,” says Josh Dorner, a spokesman for the Sierra Club. “The effect on the energy market will be immediate.” Indeed, investment in coal-fired electric generation has slowed dramatically over the past two years as the likelihood has grown that the EPA would regulate carbon dioxide, or that Congress would impose a price on the gas via climate legislation. In the last two years, utilities have canceled or put on hold 97 coal-fired generation projects.

The potential breadth of the EPA’s regulatory authority deeply concerns the U.S. Chamber of Commerce, which is adamant the ruling will put the economy in peril. In November, the Chamber warned the EPA that “a finding of endangerment would trigger a regulatory cascade that would in turn impose an inescapable and unreasonable economic burden on both U.S. citizens and the federal government.”

“No one will benefit from the ruling,” says Bill Kovacs, vice president of environmental affairs for the Chamber, adding that the ruling will allow the “EPA to run wild.” “The cost of operating a business would increase dramatically,” says Kovacs, as they’d be forced to pay for clean technology and more expensive fuel.

The EPA may now be able to regulate more than 1 million entities for carbon dioxide emissions, ranging from office buildings to churches that burn natural gas for heating, according to the U.S. Chamber of Commerce. Prior air-quality standards limited emissions of pollutants like sulfur dioxide, mostly from a group of 15,000 heavy manufacturers and utilities.

The EPA finding could be significant, too, if the agency uses it to regulate greenhouse gasses even if Congress fails to do so. Two democratic representatives, California’s Henry Waxman and Massachusetts’ Edward Markey in March introduced legislation that would establish a cap-and- trade market for greenhouse gasses as part of a larger energy bill, the American Clean Energy and Security Act. The scheme would force companies to buy permits allowing them to pollute, and would gradually reduce the number of available permits with the goal of lowering emissions. But the Senate is unlikely to adopt the House legislation as part of its own energy bill.

The genesis of the EPA’s move to regulate greenhouse gases dates to 1999, when 12 states, in addition to environmental groups, petitioned the EPA to regulate greenhouse gas emissions from motor vehicles under the Clean Air Act. In 2003, the EPA denied the petition, in effect saying that it would not pass judgment on whether automotive CO2 emissions were harmful.

But four years later the Supreme Court, in Massachusetts v. EPA, ruled that the agency must evaluate the health effects of greenhouse gasses and, if they were found to be harmful, regulate the emissions. Friday’s announcement is the end result of the Supreme Court ruling.

President Barack Obama has stated that he ultimately prefers to regulate greenhouse gasses through legislation rather than an EPA mandate, and the White House maintains that any EPA oversight would be subject to public comment, meaning that the agency might not be able to act on greenhouse gas emissions for several years.

Nevertheless, the EPA’s new power means “it’s no longer a question of if or when the U.S. will regulate greenhouse emissions,” says the Sierra Club’s Dorner. “The U.S. is going to do something on greenhouse emissions sooner rather than later.”

But the automotive industry will probably feel the effects of the EPA’s decision first. In January, the agency began reviewing California’s request for a waiver allowing it to regulate tailpipe greenhouse gas emissions, a request the Bush administration banished to administrative limbo.

The EPA is likely to grant California its request. Following Friday’s finding, the agency will have the power to impose California-style tailpipe regulations on all 50 states.